CTA Case No. 5241 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PRODUCTIVE MANAGEMENT CORPORATION, Petitioner, - versus - C.T.A. CASE NO. 5241 COMMISSIONER OF INTERNAL Promulgated: REVENUE, JUN 1 9 1997 Respondent. X - - - -- DECISION This case involves a claim for refund or issuance of tax credit certificate for the amount of P92,325.00 allegedly representing u�nuti Iized excess creditable income taxes withheld at source on management fees paid to petitioner for the calendar years 1992 and 1993. The antecedent facts of the case are simple. Petitioner is a domestic management corporation duly organized and existing under and by virtue of the laws of the Philippines. On Apri I 15, 1993, petitioner filed its Annual Corporate Income Tax Return for the calendar year ended � December 31, 1992 (Exh � A) , reflecting a refundable amount of P35, 325.00 which was computed as fo I Iows: Gross Income P1, 140,000.00 Less: Deductions 1,078,071.00 Net Income p 61 9?.9.00 Tax Due Less: Creditable Tax Withheld p 21,675.00 Tax Refundable 57,000.00 p 35, 325_. oq_ 6J l

DECISION C.T.A. CASE NO. 5241 -2 - Petitioner was not able to fully utilize its creditable withholding tax of P57,. 000.00 against its P21,675.00 tax due, thus, an unapplied difference of P35,325.00 for the year 1992. On Apri 15, 1994, petitioner filed its Annual Corporate Income Tax Return for the calendar year ended December 31, 1993 <Exh. B) I reflecting a refundable amount of P92,325.00 which was computed as follows: Gross I ncoe P1,140,000.00 Less: Deductions 1,244,91.00 Net Loss (P 104,913.00 Tax Due Less: Prior Year's Excess Credit P35,325.00 NIL 57,000.00 Creditable Tax Withheld 92,325.00 Tax Refundable 92,325.00 On April 3, 1995, petitioner filed with the Bureau of Internal Revenue an administrative claim for refund of the amount of P92,325.00, representing unutilized c reditable income taxes for taxable years ended December 31, 1992 and December 31, 1993 ( Exl1. E). The inaction of the respondent on the aforementioned claim compelled the petitioner to file the instant petition for review on April 12, 1995 in order to to I I the running of the two-year prescriptive period mandated by Sections 204 and 230 of the Tax Code, as amended.

DECISION C.T.A. CASE NO. 5241 -3 - Petitioner formally offered in evidence the fo I Iowing documents which were proper Iy identified by its witness: 1. Productive Management Corporation's Annual Income Tax Returns for the years 1992, 1993 and 1994 (Exhs. A, B and 0) together with its corresponding auditor's report as an attachment. 2. Various Certificates of Creditable Income Tax Withheld at Source [BIR Forms No. 1743-750 and 1743-1] (Exhs. A-6, A-7, A-8, A-9, B-8 and B- 9) � 3. Various Statements of Tax Withheld at Source (Exhs. B-6 and B-7). 4. Administrative Claim for Refund (Exh. E>. Respondent fai Ied to present any evidence to substantiate her denials and affirmative defenses raised in the answer. Consequently, this Court in its Resolution, dated March 11, 1996, declared that respondent had waived her right to present her evidence. The sole issue to be resolved in this case is .whether or not petitioner is entitled to the refund sought. Sectitrn 69 of the Nationa I I nterna I Revenue Code, as amended, provides, thus: "Section 69. Final Adjustment Return Every corporation I i ab Ie to tax under Section 24 shall file a final adjustment return covering the total taxabie income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not

DEC I S ION C.T.A. CASE NO. 5241 -4 - equaI to the totaI tax due on the entire yeor the taxable income of that corporation shal I either: (a) Pay the excess tax stiII due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax I iabi I ities for the taxable quarters of the succeeding taxable year.") (Underscoring suppIied > Clearly, under the law, the principle of carrying over excess tax payment is app I icabIe onIy when there is a resulting income tax IiabiIi ty for the succeeding taxable year. In the case at bar, the refundable amount of P35,325.00 for taxable year 1992 was not utilized despite carry-over because the petitioner incurred no tax iabiIity in 1993 due to a loss . �. The case of Paseo Rea Ity . and Deve Iopment Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4693, Resolution dated October 21' 1993, cited by the respondent in her memorandum is not appIicabIe. Although said case involves a claim for refund of taxes withheld, the amount claimed was presumptively applied to the succeeding year sans any proof to the contrary. And the other case titled Anscor Hagedorn Securities vs.

DECISION C.T.A. CASE NO. 5241 -5- Commissioner of Internal Revenue, CTA Case No. 4786, May 151 19951 was also erroneously cited by the respondent for the same invo I ves an app I ication of excess cred i tab I e tax withheld for more than one year contrary to the provision of the Tax Code limiting the application thereof to the succeeding year only. The . creditable tax withheld shown on the final ad j ustment return for taxable year 1993 amounting to P57,000.00 and included in the tax refundable amount of P92,325.00 was not actually applied in the succeeding taxable year 1994. This fact is supported by the 1994 Corporate Annual Income Tax Return of petitioner (EX 11. 0), showing the following computation: Gross Income PI ,320,000.00 Less: Deductions 332.00 Net Income Tax Due p 7,668.00 Less: Tax Credits/Payments (Section EJ� Tax Refundable. p 2,684.00 23 750.00 6.00 �section E: Total Credits/Payments Less: al Prior Year's Excess Credit P - 'IT Quarterly Payments/Credits made this year c) Creditable Tax Withheld 23,750.00 23,750.00 Petitioner sufficiently showed that it did not apply the 1993 unuti I ized creditable tax withheld of P92,325.00 against its income tax I iabi I ity of P2,684.00 by leaving the portion "prior year's excess credit" in blank. uc� -'- '. d

DECISION C.T.A. CASE NO. 5241 -6- Moreover, this Court, in a long Iine of cases of similar nature and issue, has already laid down three (3) basic requirements for the granting of a claim for refund of excess withholding tax payments, to wit: 1. That the claim for refund is filed within the two (2) year period prescribed under Sections 204 and 230 of the Tax Code; 2. That the income upon which the taxes return were withheld were included in the of the recipient; and 3. The fact of withholding is estab Iished by a copy of statement ( B IR Form 1743 � 1 ) du .1 y issued by t 11 c payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom (Sec. 10, Rev. Regs. 6- 85; Citytrust Finance Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4134, November 11, 1991, affirmed by the Court of Appeals in CA-G.R. SP No. 28239, March 14, 1994; Citytrust Finance Corporation (formerly Investor 's Finance Corporation/FNCB Finance) vs. Commissioner of Internal Revenue, CTA Case No. 4046, February 24, 1993, affirmed by the Court of Appeals in CA-G.R. SP No. 31104, April 18, 1994; and Paseo Rea Ity and De ve Iopment Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4254, August 10, 1993, affirmed by the Court of Appeals in CA-G.R. SP No. 32927, February 28, 1994). Petitioner satisfactorily complied witl1 the first requirement when it filed its administrative claim for' refund with the Bureau of Internal Revenue on Apri I 3, 1995. Said claim was filed within the two-year prescriptive period required under Sections 204 and 230 c� . u _�.. u

DECISION C.T.A. CASE NO. 5241 -7- of the Tax Code since the taxes sought to be refunded were considered paid on Apri I 15, 1993 and April 15, 1994, the dates the Corporate Annual Income Tax Returns for 1992 and 1993 were respectively filed (Ayala Life Assurance, Inc. vs. Commissioner of Interna I Revenue, CTA Case No. 4596, January 6, 1995, Entry of Judgment entered on February 10, 1995). The second requirement was also met by the petitioner when it offered in evidence its Corporate Annual Income Tax Returns for 1992 and 1993 showing as part of their gross income the management fees <Exhs. A-5 and B-5) from which the petitioner withheld the 5% creditable income tax sub j ect of the claim for refund. And lastly, the third requirement was sufficiently complied with by the petitioner when it presented as evidence the Certificates of Creditable Income Tax Withheld at Source (Exhs. A-6, A-7, A-8, A-9, B-8 and B- F9) and Statement of Tax Withheld at Source (Exh. 8-7) for the years 1992 and 1993. However, a cursory examination of the documents presented by the petitioner revealed that for the year 1993, the creditable tax withheld only amounted to P46,250.00 and not P57,000.00 as declared in its Corporate Annua I Income Tax Return. The Statement of Tax Withheld at Source (Exh. B-6), dated Apri I 12, 1994 6 .. ' . - ,

DECISION C.T.A. CASE NO. 5241 -8 - should be disregarded in the computation for it pertains to a different tax period (1994). The following creditable withholding taxes for 1993 were conclusively withheld: Exhibit Period Covered W/holding Agent Tax Withheld B-7 Jan.-Dec. 1993 Unimart, Inc. P2 1 ,000.00 B- 8 Jan.-Dec. 1993 Makati Supermarket 19,250.00 B-9 1993 Wholesale Commodity Year 6,000.00 Exchange, Inc . P46,250.00 Hence, the petitioner is entitled to a refund of P35,325.00 for 1992 and only P46,250.00 for 1993 or a total refundable amount of P81,575.00 for the periods in question. This Court is convinced that the petitioner has fully substantiated its claim for refund in the amount of P81 ,57 5.00. The burden of proof has been overcome by the petitioner. The respondent's contention that there is insufficiency of evidence to prove the propriety of the deductions claimed by the petitioner which led the corporatioto suffer loss in 1993 is unmeritorious. In the case of Bank of the Phi Iippine I s l and s as Liquidator of Paramount Acceptance Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4257, December 2 0, 1993, affirmed by the Court of Appeals in CA-G.R. SP. No. 34102, September 19, 1994, such argument was already settled, to wit: Cu ' _�:.. ' (J

DECISION C.T.A. CASE NO. 5241 -9 - "Despite the reservation of respondent with respect to the veracity of the return sti I I up to the time given for respondent to present her evidence and up untiI the submission of this case for decision nothing was shown during the hearing that the return was erroneous nor was there evidence presented thot there exist any irregularity in the computation or preparation of the return which wi I I taint their rei iabiIity or su�fficiency and competency as proof of overpaid income tax for the year 1985. At the time the return was filed on Apri 14, 1986, respondent's examiners had alI the time to examine and audit the return. Up to this time nothing was heard from the respondent disputing the correctness of the return for otherwise she would have, upon knowledge of any irregularity, issued an assessment for said year or at least notified this Court if there is any. It is within the competence of respondent to examine petitioner 's financial statements and audit report as these are documents necessar i Iy nttached to the return fiIed by petitioner and formed part of the BIR records. Respondent is thereby considered to have admitted the truth of the contents of these exhibits. Hence, in the absence of contrary evidence, the Income Tax Returns and the Confirmation Receipts of payment of quarterly taxes should be given credence as proof of overpaid income tax for 1985 in the amount of P65,259.00. " In addition, petitioner's declarations in its .1992, 1993 and 1994 Corporate Annual Income Tax Returns are for aII intents and purposes, presumed true and correct, having been made in good faith and to the best of petitioner's knowledge and belief. Tl1is was given emphasis in the case of Paseo Realty And Development I' . f f_) }_ J...

DECISION C.T.A. CASE NO. 5241 - 10 - Corporation vs. Commissioner of Internal nevenue, CTA Case No. 4693, July 29, 1993, affirmed by the Court of Appeals in CA-GR, SP. No. 33589, October 14, 1994, wl1ere this Court has ruled that: "It is noteworthy to point at this juncture that the declarations made by the taxpayer in his income tax return are for aII intents and purposes made in good faith and are true and correct to the best of his knowledge and belief. In fact the Treasurer and the Director, both representatives of the corporation signed under oath the income tax return of the corporation. Notice to the filor/taxpayer is printed just above the space provided for their signatures, to wit: "We declare under the penalties of perjury that this return has been made in good faith, verified by us and to the best of our knowledge and belief is true and correct pursuant to the provisions o �f t 11 e national internal revenue code, as amended, and tho regulations issued u n d ' r' authority thereof." WHEREFORE, in view of all the foregoing, respondent is hereby ordered to refund or in the alternative issue a Tax Credit-Certificate in favor of the petitioner in the amount of P81,575.00, representing unutilized excess creditable income taxes withheld at source for the taxable years 1992 and 1993. 62u

DECISION C.T.A. CASE NO. 5241 - 11 - SO ORDERED. JJ ?.J / {!)J n i\MON 0. DE /l.ssoc iate Ju c WE CONCUR: L o. ERNESTO D. ACOSTA Presiding Judge - :A?� o a. Y.' Associate Jud CERTIFICATION hereby certify that this decision was reached after due consultation among the members of the Court of r Tax Appeals in accordance with Section 13, Article VIII gf the Constitution. Q. QO ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals9 Cu ' I� }._ ;_ -